Budget 2014: a freelancer's checklist

George Osborne’s 2013 Autumn Statement may
still be fresh in freelancers’ minds, but on Wednesday it’ll be time for him to
announce a fresh round of measures at Budget 2014,
writes Derek Kelly,
managing director of two service providers to temporary professionals Parasol and ClearSky.

So how
will members of the UK’s freelancing community be affected by the chancellor’s
announcements in the House of Commons on March 19? The following checklist
outlines just some of the potential measures that freelancers, contractors and
the self-employed should look out for.

National Insurance: living on borrowed time?

Conservative
MP Ben Gummer has suggested that National Insurance (NI) should be renamed an
'earnings tax' and eventually merged with income tax. A merger has, of course,
been talked about for several years, and such a change would obviously have
significant implications for the tax affairs of freelance contractors. The
chancellor is reportedly attracted to the idea of renaming NI, so don’t be
surprised if it gets a mention on March 19, with Mr Osborne positioning an NI-income tax merger as
an idea to be explored and possibly worked towards in the coming years.

IR35: due to be tightened further?

Merging
NI and income tax would, according to the Office of Tax Simplification (OTS),
make IR35 redundant. In the meantime, however, the 14-year-old piece of
legislation survives and continues to evolve. ThePersonal Service Companies
Committee could publish its recommendations alongside the Budget, paving
the way for further reform and tightening of IR35. Limited
company users must hope that any proposed reforms are sensible, proportionate
and practical.

In a bid
to allay these concerns, HM Revenue & Customs has suggested that the
onshore employment intermediaries legislation will not cover personal service
companies, or indeed independent workers who operate through professional
employment organisations or umbrella companies.

However,
we would like this to be stated unambiguously in the legislation and the
accompanying guidance, which is due to be published imminently. Indeed, along
with our fellow Freelancer and Contractor Services Association members, we have
been lobbying government on this point. While we feel it is unlikely that the
legislation will be delayed, the chancellor could act to give recruitment
agencies more time to comply.

Offshore employment intermediaries: message to be
reinforced?

Meanwhile
the Offshore Employment Intermediaries legislation, which seeks to close a tax
loophole whereby the employment of UK-based workers is outsourced to offshore
umbrella companies with a view to avoiding PAYE tax and National Insurance
contributions (NICs), is also due to come into force when the new tax year
starts in April.

The
government announced at Budget 2013 that it would be taking action, and the
draft legislation was published on December 10th 2013. The new
legislation will have consequences for any contractor working through umbrella
companies based offshore.

The
chancellor may reiterate the measures during his Budget speech, or provide an
update, as part of wider efforts to demonstrate that he is taking action to
clamp down on offshore
tax avoidance.

Contractor benefits and expenses: set for
simplification?

Several
of the recent OTS recommendations for simplifying the benefits and expenses of
umbrella and limited company users could be included in the Budget. One OTS
recommendation that could be adopted by the chancellor would see limited companies
being granted the ability to process benefits for staff -- including directors --
via payroll, instead of needing to submit a P11D directly to HMRC. Any measure
that makes it easier and simpler for micro-business owners to recoup legitimate
expenses incurred as a direct result of an assignment, as well as benefits,
should be welcomed.

40p tax threshold: will it rise?

The
chancellor is coming under pressure from within his own party to use his Budget
to raise the 40p tax threshold, with some Conservative MPs calling for the higher-rate
trigger to be increased from £41,450 to £44,000. The calls come after new
figures revealed that 800,000 people have moved into the higher-rate tax
bandin the past three years. Should Mr Osborne take heed, the change
would be welcomed not only by contractors who stand to gain personally, but
everyone who believes the current rate acts as a brake on ambition and
entrepreneurialism.

Final thought

We hope
that the contents of Mr Osborne’s red Budget box are received with applause by
the country’s skilled, flexible and freelance workforce, rather than groans, as
the chancellor has an opportunity to support them which, in turn, will boost
the economy and the public finances.